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The Purpose of this dissertation is to establish the successful characteristics of the Fast moving consumer goods in the United Kingdom talking into account fresh produce and Dairy and to see what developments have taken place in this industry in line with the grocery industry.
Food is an element that plays an central role for the survival of human beings .If you remove everything that plays a part in sustaining life, the last thing that you consider are air food and water (Jane F.Eastham, Liz Sharples, Stephen D.Ball, 2001).The Food industry differs from county to country depending on the country's attitudes, culture and the way the people perceive it to be. In Today's society people all around the globe very much concerned about the quality of Food that is delivered to them. In UK Food industry is a major economic player contributing radically to the gross national product.
In the recent years so many changes have been bought into the food supply chain and most of these strategies are in line with what are similar in the automotive industry which is mother of all supply chain. The food supply chain has evolved over years and it began from the hunter-gatherers through primitive agriculture to developed agricultural economics (Jane F.Eastham, Liz Sharples, Stephen D.Ball, 2001).
It has been an organic change that has taken place over these years. As things have changes we are now looking at a global food supply chain. The food that we eat on our table or anywhere would have reached us through a big process before it is cooked and served to us. For example each ingredient that is put into the dish would be from different place with different cultures then put together to make it into how the customer wants it.
In today's economy the consumers are demanding more and they want things at much faster response rate. In fact they are able to purchase food from every corner of the globe at any time. Companies all the over the globe are in competition with each other to reduce its lead time and make the product reach the customers at a faster rate. For example if you take into account the grocery sector which is one of the largest sector in the UK they have to be updated with the changing market demand and these information should be passed through whole supply chain.
1.2 Fast Moving Consumer Good
In the global economy the Fast moving consumer goods relies effectively on the effectiveness of supply chain. The term Fast moving consumer good suggests that goods that are of limited shelf life and are greatest chance of perish ability .So it is essential that companies have to be very responsive to the market tend and respond back and forth along the supply chain to fulfill the customer needs.
The FMCG is the one of the fastest growing sectors in the UK which involves the food and the grocery. Even though it is the fastest growing sector it is filled with challenges within the supply chain which involves from Purchasing, Warehousing to providing the items to the retailers on time. The FMCG sector because of its high perishes ability and short lived life is always looking for innovative ways to improve the supply chain.
The FMCG Sector is quite a different sector due to its nature and range of it products and the techniques that are used in other industries might not fit with FMCG sector and will not provide the same results as expected. The purchasing aspect of the FMCG sector because of its short lived nature of the product will take into account the rate at which the products are purchased from the supplier by the retailers and supplier buys from the manufacturer.
Retailers also should make sure that products are replenished on a timely bases before the next set of products are brought into the self. Here the buying behavior of the customers also is to taken into account of the item being purchased and it is on the basis of which retailers pass on the information. In the situation the Manufactures or the retailers are not directly exposed to the buying pattern of the customers.
In the FMCG sector most companies gives importance to the Transportations aspect i.e. how fast the product can be delivered to the retailers to have sustained supply chain. FMCG sector is also concerned with how fast the information flows from the customer to the retailer till it reach the manufacturer because this could provide a base to the FMCG sector on the basis of which products can be supplied to the retailers. The Transportation side will look into how the vehicle can be utilized in a proper manner to reach the products on time and the key factors that will be taken such as collaboration, safety measures, competition, and the environmental factors.
In today's competitive world FMCG supply chain are taking into account the use of technology to provide the information at a much faster rate than is expected. In today's purchasing pattern of the buyers the products the customers demand are growing and the retailers are looking for the best supply mechanism for information and products.
1.3 Purpose of the Dissertation
Firstly the objective is the bring out insight in detail about the Fast Moving consumer goods taking into account different supply chain concept. In order to get the view about the FMCG the beginning of the literature review would a brief description about the FMCG in the United Kingdom and its present situation mainly taking into account the Fresh produce and Dairy Industry.
Secondly after providing a brief outlook about the FMCG the next stage would involve bringing out the different purchasing strategies that is involved in the FMCG sector. This stage would try to bring about a consensus on the way Retailers and Manufactures in the supply chain try to meet its customer's needs taking into different factors affecting the FMCG sector.
Thirdly the topic try to provide knowledge on the kind of vehicle utilization and storage that takes place in FMCG sector for the transfer of the products from one location to the other and different criteria that need into be taken into account. It also deals with impact environment have on vehicle utilization.
Fourthly would involve different techniques that has been used in the FMCG sector with the emergence of new technology which has provided better information sharing among the supply chain in delivering products at the right place at the right time
Finally and the last part of the dissertation would involve giving out an analysis on two countries FMCG sector i.e. the U.A.E and United Kingdom and try to figure out if there is any difference in its working structure. Then it would also involve some problems that are faced in these supply chain taking into account mainly the vehicle utilization and how better these can be implemented in this sectors.
1. How does the purchasing take place in FMCG sector from a grocery point of view?
2 .What are the factors considered when utilization of vehicle takes place?
3 .Is there any difference between the FMCG supply chains between countries?
1.4 Research methodology
People undertake research in order to find things out in a systematic way, there by increasing their knowledge (Jankowics, 1995).The methods used in the research are very important to bring out a direction in the work that is being done. Research methods are very critical to success or failure of the work.
There are different kinds of research methods used such as Qualitative /Quantitative data, Primary and secondary data sources, deduction /induction methods and so on. Each of these methods helps to provide different kinds of view point on the project. Firstly, Descriptive research is identify the FMCG sector in the United Kingdom.
Then a inductive method is done to test if there is relation about the FMCG sector in UK with relation to U.A.E. This is done in order to find out if the supply chains are same in both these countries. Secondly another method used to get more information on study is doing qualitative data on the research. Qualitative data can collect from many ways which can be primary data/secondary data.
The main reason to make use of qualitative data is to find out the result in deep (Ghauri and Gronhaug,2002).To get a clear cut view point of the FMCG sector mainly secondary data is taken into account .In the effort to get information regarding FMCG books ,articles, journals. etc is used as form of secondary data. Thirdly even primary data has also been included in the research and is focused on collecting information about the FMCG sector in UK by making use of mailing questionnaires. Apparently as mentioned above the research is used in the most effective way to get the most efficient data to find the reliable result from the analysis.
1.5 Dissertation structure
The project would start by providing an insight to the Fast moving consumer goods in the united in chapter 2.Then chapter 3 would include research methodology. In chapter 4 there would be an analysis done on Fast moving consumer goods. Finally Chapter 5 will include conclusion.
This dissertation would mainly focus on finding out developments that's taking place the FMCG sector in uk and try to find difference between FMCG supply chain in both these countries and to see what is lacking in the Indian FMCG sector. Qualitative analysis is mainly used to collect data by making use of primary and secondary data.
2 Research Methodologies
The Most important part of the dissertation is to make sure the way in which the dissertation was carried out. To make sure that the research has been carried out correctly the data and information used in the dissertation was carefully carried out from many sources. It begins with research design and is followed by research strategy. Other part would contain the explanation of data collected.
Before the beginning of any dissertation work the most important part which is needed is how the search for the data and information was done in order to find things in a systematic way. According to Ghauri and Gronhaug (2002) research is very important because it is the essential evidence to support the paper. People undertake research in order to find things out in a systematic way, there by increasing their knowledge (Jankowicz, 1995).
Here the word systematic way refers to the logical relationships and not just belifs. The dissertation also involves the methods that have been in implemented to do the research and the different ways of collecting the required data and in formation and then provide the results and limitations for that. Firstly the research has been designed systematically. According to Saunders and his companies concluded that the research involves a theory to improve acknowledges, has to ways to develop the theory. There are Deductive and Inductive approach.
The deductive research involves a study in which a conceptual and theoretical structure is developed and then tested by empirical observation and inductive approach involves a study in which theory is developed from observation of empirical reality .its the reverse of deductive method (Jill Hussey and Roger Hussey, 1997).
Induction and Deduction Methods
Laws and Theories
Facts acquired through Facts acquired through
Induction and Deduction: Source: Adapted from Research Methods in Business Studies, A Practical Guide by Ghauri and Gronhaug, 2002
The topic of the dissertation focuses on understanding the characteristics of Fast moving consumer goods in United Kingdom, and a Inductive approach was chosen at the most suitable. The research also will try to find out if there is any difference between the FMCG supply chains from another country taking into account India. Secondly the study will also try identifying probable result by making use of primary data and secondary data which are considered as qualitative and quantitative methods.
A descriptive and explanatory study is also done to find in detail about the FMCG sector. The object of descriptive research is to portray an accurate profile of persons, events or situation (Mark Sauders, Philip Lewis and Adrian Thornhill, 1997).The reason why explanatory studies is done is to see if there is any relationship between the FMCG supply chain in United kingdom and India. Studies which establish a casual relationship between variables may be termed explanatory studies(Mark Sauders, Philip Lewis and Adrian Thorn hill, 1997).The topic would involve all the useful information that is dependable from the rightful sources.
Whatever type of research or approach is adopted there are several fundamental stages in the research process which are commonly to all scientifically based investigations (Mark Sauders, Philip Lewis and Adrian Thorn hill, 1997).
Stages in the Research process
Identify research topic
Define research problem
Determine how to conduct research
Collect research data
Analysis and interpret data
2.2 Research strategy
The dissertation would involve strategically and logically making use of plan to go about doing the research work. The research strategy would provide a help to how to go about answering the research questions that have been set forward. This allows to clearly define the way in which the information can be collected and the different sources of collecting the required information from many resources available and which in turn leads to selecting and defining the most rightful and appropriate one that suits the research.
The strategy was built according to Saunders and his colleague's research. Strategy involves a step by step manner in which the dissertation is going to be carried out and it must start by specifying or indicating the types of research that are going to be implemented. According to Bryman and Bell (2003) concluded that there are two types of research that are involved mainly which are qualitative and quantitative research. Both these techniques have many different base and the main difference between them is quantitative is not quality but procedure.
Qualitative research is an unstructured, exploratory research methodology based on small samples that provides insights and understanding of problem setting.(Malhotra,1999) where as Qualitative research has greater potential than quantitative research as it offers prospects of flexibility and change in direction of the course are much easier (Bryman,Bell;2007).According to Ghauri and Gronhaug the table below illustrates the different characteristics of both these techniques and how effectively both can be used for a research
Emphasis on understanding
Emphasis on testing and verification
Focus on understanding from respondent's/informant's point of view
Focus on facts and /or reasons for social events
Interpretation and rational approach
Logical and critical approach
Observations and measurements in natural settings
Subjective 'insider view' and closeness to data
Objective 'outside view' distant from data
Hypothetical-deductive; focus on hypothesis testing
Particularistic and analytical
Generalization by comparison of properties and contexts of individual organism
Generalization by population membership
Source: Adapted from Research Methods In Business Studies, A Practical Guide by Ghauri and Gronhaug,2002
According to the data collected only few data and information are of qualitative type due to responds received from the respondent's. Most of the data and information collected are with the help of quantitative method and a inductive approach is made use to carry out the research To be more suitable for the research and due to the limited data received from qualitative the quantitative method is made use of more and a detail description about these different methods would be explained in detail later.
According to Saunders and his other fellow researchers the research strategies can be done in many different ways such as the case study, experiment, survey, grounded theory, action research etc
The Main strategy that was used in this research was to find out Firstly about the UK FMCG supply chain and to see if there is any similarity between the FMCG supply chain in two different countries mainly Uk and India. Both of the information that has been used in this research is by making use of secondary data due to lack of support from the primary data. Few of the above strategies where used to start of the research regarding the FMCG supply chain in Uk before comparing it with India.
2.3 Collecting data
The data used for the research are collected in two different ways mainly Primary Data and Secondary data. Both these data collection differs and it adds its own strength and weakness to the research.
2.3.1 Primary data
As mentioned before not much of primary data is collected due to lack of response. Primary data would have provided much more detail into the research as the information have to taken by themselves which would involve observation ,experiment ,communication. Firstly lot of things has been taken account for the research by careful observation of what's happening with the FMCG relating to the grocery sector. For example trying to see how much time would take for an item to be replenished from a store etc and why that expiry of some item is is so early.
To get some information about the India FMCG supply questionnaires which are mailed have been made use of to help with research. Even though the questionnaires where of not much help to research some data which are essential have been used to support the research. However there are things that a researcher needs to take into account when doing primary data such as sensitive questions, biased problem, ethnic problem (Bryman and Bell, 2000).
The main reason why mail questionnaires was used because a wide geographical area could be covered and doesn't cost anything. These questionnaires can be filled by any person according to their pace at any place were there's an internet facility. Compared to other means of collecting data this allows to communicate and respond at a faster rate. As in the case of the research that was carried out the response rate was very low because the question where targeted to professionals and those questions needed specific answers to them.
2.3.2 Secondary Data
Most of the research is done with the help of the secondary data available as this data provided a strong support compared to others. Secondary data includes both qualitative and quantitative methods and these can provide a useful source from which to answer , or begin to answer ,your research questions (Mark Saunders, Philip Lewis and Adrian Thorn hill, 1997). This data mainly involves data that are already available for usage. There are different kinds of secondary data that are used such as multiple sources, survey and documentary (Mark Saunders, Philip Lewis and Adrian Thorn hill, 1997). The figure below will show detail description of different secondary data
Types of Secondary Data
E-mail, Reports, Books,
Organization records etc
Censes of population,
Census of Employment
Media accounts including
Television and radio. Taped interviews. Video-taped observation
Industry Statistics and reports, Government publications, Books, Journals
Continuous & regular
Government Labor force Survey, General Household Survey etc
Type of Secondary data: Source Adapted from Research methods for Business Students by Mark Saunders, Philip Lewis and Adrian Thorn hill, 1997.
As mentioned above the data used for the research are taken from secondary resources mainly journals, Books, Internet information etc. With the use of secondary data importance is also given to data available from primary data so as to do an analysis part. The reason for using secondary data is illustrated below with it is advantage and disadvantage to the study (Mark Saunders, Philip Lewis and Adrian Thorn hill, 1997):-
May have fewer resource requirements
Longitudinal studies may be feasible
Can provide comparative and contextual data
Can result in unforeseen discoveries
May have been collected for a purpose which does not match your need
Access may be difficult or costly
Aggregations and definitions may be unsuitable
Initial purpose may affect how data are presented
In review for carrying out any research for the dissertation purposes there are plenty number of ways and the most important thing out of all is choosing the right ones. The dissertation makes use of induction method and more focus is given on quantitative data. Compared to primary data lot of information has been collected by make use of secondary data. Research methodology involves analyzing and interpreting the required data try to find out which method will prove more advantage or disadvantage to the overall dissertation.
2. Literature review
This part of section has been mainly divided to four major parts mainly:-
2.1 -Fast Moving Consumer Goods Supply chain
2.1.1 Dairy Industry
2.1.2 Fresh produce Industry
5.1-Vehicle utilization In Fast moving consumer good
2.1 Fast Moving Consumer Good
Fast Moving Consumer goods are those products that have a limited shelf life and they are categorized into several different ways according to its usage. Consumer goods are not just strictly limited to what is bought in store but it also involves items that are home delivered, markets and stalls etc. Fast moving consumer includes items such as fruits and vegetables, diary products, sugar and other drinking necessities.
Another category of products that can also be included under FMCG are durable goods. The Food and drink supply chain has been a linear relationship involving the primary producers, or farmers, the manufactures or processors who fabricate the food for table and the retailers who gather a range of such products and sell them to the consumer (Jane F.Eastham, Liz Sharples, and Stephen D.Ball, 2001).
FMCG business rests on the two pillars of brand equity and distribution network. In FMCG products, brand equities are relatively stronger as the consumer is reluctant to try unknown brands/ unbranded products as most of these products are for personal use. It is often difficult to differentiate a product on technical or functional grounds and therefore little reason to switch from a known brand.
According to Keller (2004) a successful brand generates strong cash flow, which enables the owner of the brand to reinvest a part of it in the form of aggressive advertisement/ promotion to reinforce the perceived superiority of the brand. The worth of a brand is manifested in the consumer's insistence on a particular brand or willingness to pay a price premium for the preferred brand.
In FMCG sector, one of the most critical success factors is the ability to build, develop, and maintain a robust distribution network. Availability near the consumer is vital for wider penetration as most products are low unit value products and frequently purchased. Supply chain takes enormous time and effort to build a chain of stockists, retailers, dealers etc and establish their loyalties. There are entry barriers for a new entrant as a new product is typically slow moving and has lesser consumer demand.
Therefore dealers/ retailers are reluctant to allocate resources and time. Established players use their clout to inhibit new entrants (Mohan, 2005). However, when a product offers a strong breakthrough, equity we build up rapidly and so does the supply chain network. Moreover as the supply chain environment has improved with better infrastructure, mere availability of products at retail outlets is not going to be enough; a value proposition is needed to break the increasing clutter of products (Sarwate, 2004).
In United Kingdom as mentioned in the introduction (food and grocery) is a major economic player and the makes a significant contribution to the gross national product. It employees over 3.2 million people, which represents 16% of total UK workforce (Mark Francis, 2006). Compared to all other industry the food industry is the most complex of all supplying to the general public. In the UK supplies of food and drink have not only been outsourced within but comes from different parts of the world.
Supply chain has been defined as a network of organization that are involved through the upstream and downstream linkages in different process and activities that produce value in the form of products and services in the hands of the ultimate customers (Christopher,1992). FMCG supply chain also like any other supply chain retailers, manufactures are now looking forward to reduce there lead time to make the product reach the customer at a fast rate. It is important note that the food supply chain has been very slow in responding to the success of the motor industry and in recent years progress has been made in food supply chain.
Basic structure of Food supply chain
Raw material Production
In the today's turbulent and uncertain world many companies in United Kingdom and around the world are trying to mitigate the risk and create more resilient supply chain. In United Kingdom most of retailers have collaboration with its manufactures/assemblers in supplying the products at faster rate. One of the biggest example is the diary products industry where some of the UK' s top retail grocery shop Tesco's, Sainsbury etc have collaboration with farmers in supplying products to these retailers.
In today's world these retailers are trying to provide customers products by making uses of customers driven system to respond to customers demand there by trying the reduce the lead time to much more smaller period. Here the supply chain are being transformed by quantum leaps in technology, rapidly changing consumer demand and the need to take a global viewpoint (Bob Low son, Russell King and Alan Hunter,1999).It is also important to note that these FMCG have either similar or the same kind of supply chain activities.
For example the supply chain activities of durable goods would be different from that of perishable products like milk or any other fresh produce. In the united kingdom there are number of sector for food and drink supply chain and it is subdivided into agriculture, horticulture, fisheries and aquaculture which are the primary producers, then the manufactures ,wholesalers, retailers at each stage of supply chain. As in any country the food chain started in uk with primary producers, the farmers and the fishing industry.
Various stages in the Food Supply chain
T 1 P CON
I 2 P SME R CON
M SME R
E 3 P CON
P: Producer CON: Consumer SME R: Small/medium sized retailer LR: Large retailer
2.1.1 Dairy Industry
In the United Kingdom as shown above in the figure the farmers are going back to the traditional way of supplying to the consumers directly. It is estimated that about 200 Farmer markets are now generating an extra of pound 65 million in sales for the agriculture industry (Brown ,2000).Take into account the two of the most important industries in the UK the fresh produce and Diary industries supply chain process has to be at a constant pace due to its perishable nature. United kingdom is the seventh largest milk producer in the world and it has changed dramatically over the large 40 years.
In the united kingdom the diary industry is one of the most fiercely competitive and semi intensive livestock industry sector and for the first time it has brought together the processing and farming organization together in England, Wales, Scotland, and Northern Ireland. This Giant step have a created a great impact in the supply chain activities in one way or the other. The production of milk in UK is between 13 to 14 billion liters a year which is then converted into a wide variety of diary products.
Almost half of the milk produced on farms in the UK is processed into liquid milk. Almost bulk of the output from the diary industry is intended for consumption by consumers.The Diary industry accounts for around 18 per cent of UK agricultural production by value and is the single largest agricultural sector at 2.8 billion. Annual production is around 13.7 billion litres.In UK there are four major dairy companies who process 85% -90% of raw mik.The report has shown that has there has been decline in the liquid milk consumption according to Dairy Council Figures.According to this the uk milk market figures in 2002 uk showed
48 % of raw milk was processed into liquid milk
25 % into cheese
13 % milk powder
15 % into other products inculding cream and butter
But over the past years there were issues that has happened in the Diary industry.As conumers started being from aware of the environmental aspect of these industries they where concerned on weather the products are coming through the right channel of distribution with the right quality .Not only consumers but also suppliers of these products where also concerned about the power that was in the hands of large retailers and amount of pressure that they could have on them.
The British Dairy Farming industries future affects people, the environment, Countryside, food quality, and security, local communities and the economy. It has also been founded out in a recent survey conducted by the milk development council of diary farmers found that 16 % of diary farmers are planning to leave within next two years and the production could fall by as much as 900 million litres or 7 %. The reduction in dairy farmers in 1995 was 28000 in England and Wales which reduced to 13000 by the end of 2006. (Press Briefing)
The dairy supply chain as all other agri- business is complex. The dairy supply chain technically starts at raw milk production and ends with processors, institutions and consumer utilize products that were created in value chain. Companies such as Nestle, Danone etc are moving towards where there is growth in consumption and there has decrease in the diary processor going out of commodity processing and shifted into branded value added products. (Bill Vorley, Corporate Concentration from Farm to consumers))
2.1.2 Fresh produce Industry
The other industry that has to be taken into account is the fresh produce industry of the UK.In the united kingdom the fresh produce industry has been historically lagging behind the manufaturers of FMCG in its approach to merchandising and marketing(Andrew Fearne and David Huges,1999).t is also a point to be noted that year on year the consumer spending on food has been increasing on all the sectors and the consumption of fruit and vegetables is the largest among the other food sectors.
The united kingdom is 80% self sufficient in vegetables and but below 20% self-sufficency in fruit.The Uk fresh produce aaccounts for 12 % of total expenditure on food with retail selling value of over 7 billion pounds(Micheal O keeffe and Andrew Fearne, 2002).Now a days the reailers describes fresh produce as destination catogeory for which it does'nt take much time for shoppers to choose and switch shops.Over the last 15 years the trend in fresh produce has changed and it has moved form back of the store to front and has doubled its shelf are in store.
It is important to note that tht Food safety act of 1990 had a great impact on the evolution of this industry.This act made sure that the supermarket buyers take resonable step to ensure that Food that is recived from the suppliers is on safe quality.The fresh industry (fruit and vegrtable)can be taken in the form as a dumbbell where two weights on both side represents production and marketing and in between both a narrow distribution channel.The fruit and vegetable industy has been taditionally fragmented and some links have performed well while others have caused bottlenecks.It is noticed that in perishable commodities contractutal or integrated exchange arrangements are more commom than in storable commodities(Natha wilson,1996).
Over seventy years grocery and supermarket stores have evolved into the modern market place as the most convenient and diverse business in the world. In the uk there is intense competition between the grocers four of the major being Tesco,Asda,Sainbury and Safeway. Not only these major Grocery stores but also others make use of many of the products from the fast moving consumer good sectors and these two industries namely the fresh produce and Diary products which are bought in bulk from the major suppliers.
The uk grocery industry is the third largest in the Eureopen Union and the two industry Fresh produce and Diary have a constant relation with both these industries in supplying products to the grocers.Both these industries supply chain activties has made use of partnerships or colloboration to work with each other in many ways.
Even though such activities are taking place between them there is still argument on the way how the power is dominated and there are still some inefficiencies in supply chain and how this can affect the cause of these industries working.However despite this intense competition and power strugggles both these industries work closely together and recoganize the importance of supplying the product to the consumers (Andrew Cox , Paul Ireland , Chris Lonsdale , Joe Sanderson and Glyn Watson , 2002).
Over the years Fast Moving consumer Good industry are trying many innovative ways to make the product reach the customer by trying to have alignment with the top grocery retailers there by trying to reduce the lead time of the product by ensuring customer satisfaction.
Supply chain management covers a number of activities having a numerous interconnecting branches and distinct staging posts.One of the important activities of the supply chain management has been the purchasing side which has tremendously changed over the years beacause of the importance it has bought to the firm.'Strategic sourcing is a big business !(Lopez , 1993).Firm all around the globe have realised that managing supply strategically can save a tremendous amount of money and which has inturn lead to investment in this area of management.
Purchasing is the acquisition of inputs into the firm.Strategic supply is the management of inputs and the transformation process,which includes the structuring of the supply activity of the firm (Jane F.Eastham, Liz Sharples and Stephen D.Ball , 2001). .The purchasing function has transformed form a clerical fuction to a strategic process over the years.
Now a days companies are becoming much more proactive rather than reactive in there purchasing fuction so as to respond to the consumers on a timely basis which is very much important for FMCG goods because of its nature.As mentioned in the first part of the literature review most of these Fast moving consumer goods are bought in my goceries and supermarket and there supply chain has to work in an efficient way in supplying the product at the right place at the right time with the right amount of quantity.These industries purchasing department will develop according to the criticality of materials and attitudes of top management towards purhasing(Syson , 1992).
As these products are of persishable nature there are lot of thinking put into the purchasing decision.Consumers have placed new demand on attributes of food such as integrity,quality,diversity, safety and associated information(services).There has also been so much concentration on the dydic linkage i.e the relationship between the buyer and the seller.This relationship was extended in the late 1980's and added increased complexity as it took into account the buyer,supplier and the final customer( (Jane F. Eastham, Liz Sharples, Stephen D.Ball, 2001).
Each of these played an important role in the supply chain getting stronger and better.In both these industries colloboration between the buyer and sellers played an important role on supplying the products to the final customers.In the recent years farmers where taking notice of colloboration and trying to be more market oriented according to the changing trends.Colloboration as a starategy helped to reduce the risk and uncertainty for everyone in the industry ,as well as fostering the right environment to stimulate innovation and increase value creation (Palmer, 1996; Van der Vorst et al., 1998; Fearne, 1998; Katz and Boland, 2000).
There always existed a relationship between the grocery industry and the two industries fresh produce and Dairy because the amount of product that is bought into this sector is of huge quantity.The grocery industry manily involves buying and stocking of goods purchased from the suppliers for resale and these products are inturn sold to the customers.The grocery industry should make sure that the goods supplied from the suppliers are of good quality and the information regarding the replenishment of the product information reaches the supplier at the right time so that the process can start at the other end of the supply chain at an early stage.
Over the last years the startegies adopted by supermarkets and grocery has changed dramatically.There has a lot of innovation that has taken place over these years to make the supply chain more efficent and responsive.The UK grocery mulitiples dominate the agri business controlled by the major supermarkets like tesco,sainsbury safeway,asda.It is believed that power of these firms runs bi-directionally take in both customers and suppliers(Andrew cox , Paul Ireland , Chris Lonsdale, Jale Sanderson and Gylan Watson , 2002).
Like any other agri business the dairy supply chain is complex one and there lot of competeition between so many varirety of food products to achieve consumer rand.The dairy supply chain begins with raw milk production at the end of the chain and ends with other proccesors,institutions,and consumer utilizes product that where created in the value chain(Analysis of selected food value chain )(Here the name of the author is not given only the articles name).
Like any other product which is of pershiable nature the replenshiment information should be at faster rate by the grocers which would be helpful to solve the problem of responding to consumer demand.As customer demand for the product is not static the people in the supply chain process will have direct affect of the reaction and they have to change or adopt accordingly.
The Demand for dairy product which are categoried as healthy products are of high concern in the uk market and the consumers are very much concern about the product that is sold is of right quality from the right means.In UK there are many independent farms and these farms sell the raw milk to seven major milk processors which in turn sell the products to grocers around uk. The Uk Dairy supply chain netwok has seen significant changes since deregulation in 1994,among them was the continuing reduction in the number of dairy producers(Susan Ambler-Edwards , 2008).
There has a significant change in dairy industry especially in the type of milk that is sold to the consumers and it has been categorsied to organic ,skimmed and semi-skimmed.It is noticed that there a link between the farms,the milk processing unit and the grocery /supermarkets to supply the products to consumers.Each of these has its own purchasing starategy to supply the raw materials to each of its end consumers wether it is Farms supplying raw malk to the milk processing unit and then the finished product to the grocers which is then consumed by the customers in accordance with their taste and preferences.
As the grocery sector being at the end of the supply chain and closer to the customers most of this sectors purchasing strategy has to be in align with the farming and Dairy processing unit.So the information passed to the milk processing should be at the right time accoding to the signal received from the customers and the information is then passed onto to the Farmers.
The Grocery sector being the largest consumers in Dairy products has to be very much timely with its replenishment of products from its shelf.These are goods that has the shortest shelf life.Grocery sector consists of lot of data which involves listening,understanding,observing the customers reaction of the product and analyzing these information sending it back to the milk processor which is further send back to the farmers which is helpful for the grocers in order to provide a base for the when the next procurement of the product should take place.
This kind of activity is useful for the milk proceesing unit because it would not give them a chance to overestimate there milk production and the amount raw milk that's needs to purchased from the Farmers.Here it allows to have strategic purchasing on all the stages.If you take into account the fresh produce(Fruit and vegetable) and the grocery sector the relationship that exist between them are some what same and even the purchasing strategies used.
The dairy industry does stratagic alliance between frims to stregthen there position in the market.By making use of strategic alliance it gives the both firm's the opportunity to utilize the production sites,distribution channels can be utilized effectively.One of the strategeic alliance that has taken place was between Arla Food's which third in the domestic market and the second largest milk dairy farm in the uk i.e Express Diaries(Sofia Hedberg, 2004).
Not only Grocery industry but also Dairy industry over the years are still making use of many techniques such as colloboration,Partnership ,Efficient consumer response ,cateogery management to improve there purchasing strategies.The implementation of ECR and catogery mangement in this industry has heralds the dawn of a new era in which value creation is a prirority.in which supermarkets and the manufacturers are working together to exploit the diverse opportunitues which exsit in the cosmpolitian marketpalce in which affluent diligent consumers are running out of time to purchase,prepare , cook and consume their food(Andrew Fearne and David huges , 2000).
Efficient consumer response was introduced into the grocery industry as means to responding to consumer demand and to promote the removal of unnecessary costs from the supply chain. By means of ECR it allowed companies and firms to serve the customer at faster rate and to work with the trading partners at low cost. ECR objectives are accomplished through both supply side and demand side strategies (Kyle Dupre and Thomas W. Gruen, 2004 ). The reason for this kind of implementation was due to the distrust between the retailers and lack of strategic orientation.
Here the supply side objective was to get the product to the end user quicker and cheaper and the demand side took to account strategies such as category management to determine which product should and should no reach on the retailers shelf.Grocery sector involved a lot of colloboration with the fresh produce and Dairy industry in supplying the products.These colloboration provided a surity that they would receive the product at the right time even if there are some issues that happens in there supply chain opeartion.In the fresh produce industry the increase and dominance of multiple retailers and the key strategic importance of own lable products has elevated the fresh produce to position where suppiers have a geninue opportunity to break out of the commodity trap (Andrew Fearne and David huges , 2000).
In the Grocery industry the supermarkets are trying to reduce the cost in the supply chain by improving the supply chain integrity and having greater consistency.Now a days super markets are reducing there supplier base to few suppliers and they are taking every opportunity to outsoucing the major activitvies to the suppliers from procurement to distribution and providing the chosen supplier with large voume growth.The interaction between the buyer and the supplier provided them to deal with issues and problems on a daily basis.
This kind of interaction between both these industries opened the door to cooperate with each other take necessary decision on the supply chain actvities.As for the grocery industry this provided a base to improve there purchasing startegy and reduce there cost.From the supplier side these suppliers have responded by organising themselves into either marketing co-operatives or agencies to increase the scale of operation,appointing an individial to interact with buyers on day-day basis(Shaw and Gibbs , 1996).
Another important development that was bought into this sector as mentioned above was the use of category management which tend to shift the relationship between retailers and suppliers to collaboration between each other and helpful to transfer information and data exchange. Category management is helpul in narrowing down their supplier base to one single supplier named as categoery captain and a lot of information would be transferred between the both.The main objective of the category management is to work closely with the management and grow the category.and was used as a means to establish trust and commitment between the manufacturer and the retailers.
Manufacturers can influence the assortment plans of the retailers by providing retailers with knowledge such as market share,trends and brand expendiure.This in turn allows the manufacturers focus on the category more strategically with the retailers.The category management mix is based on systematic category reviews,and it results in a category that is differentiated from competitiors categories from the ''eye of the consumer' (Kyle Dupre and Thomas W. Gruen , 2004 ).
Both these industries has to work together to bring out the best from there purchasing department. Purchasing as function could bring out the business in them by seeing it as strategic function at the core of its business and in both the industries which is very helpful in cutting down the costs in the supply chain.
The groceries has to make sure that continuous replenishment of the product take place at all times because of its perishable nature and also make sure that the information flow is done on a timely bases. The retailers have to respond to the customers signals at a faster rate so that the process could start at the other end of the supply chain at the correct time. This would help the suppliers to purchase the product according to the required quantity and quality.
Different possible structure in which the product can reach the grocery
Farmers Processing unit /Packaging Grocery
Farmers Processing unit Packaging Grocery
Farmers Processing Unit Packaging Suppliers Grocery
4.1 Technology in FMCG by Grocery sector
In today world most retailers are looking for innovative ways and idea to redefine the way they their doing business and respond to market trends and try to develop new channels and ways to make the product reach the consumers. As consumers started becoming more demanding in the today's challenging and competitive market place technology was the word that stood out and was seen as an opportunity by firms to make the supply chain more responsive and customer oriented in many number of ways.
One of the key aspect by making use of the technology available was to improve the visibility of the product in the supply chain and it allows real time , accurate information to be easily accessed and shared collaboratively with all parties within the chain so that appropriate action can be taken. Advances in the information technology has changed the entire FMCG supply chain operation over the last twenty years trying to use it from ensuring better coordination between members of the supply chain to making use of bar codes and other technologies to trace the product.
According to Chopra & Meindl (2006) Information is crucial to the performance of supply chain because it provides the basis on which supply chain managers make decisions. Without information a manager cannot know what customers want, how much inventory in stock, and when more products should be produced or shipped. Without information, a manager can only make decisions blindly. Technology has provided an edge to greater integration and cohesion among members of the supply chain.
These technologies include direct linkages with external constituents, such as electronic data interchange with strategic suppliers, middleware connecting independent information system such as separate enterprise resource planning systems installed by buyer and suppliers, rapid development of online, Web-based solutions, including customized portals and extranets.
All these technological advantages have made the companies / firms to become much more proactive with there working environment (Brian Slobodow, Omar Abdullah and William C. Babuschak, 2008). In the food industry one of the issues that was faced was the reliability of food industry which was challenged by number of crisis over the past decade ( Ioannis Manikas and Basil Manos , 2006 ) .
Food industry took the initiative to have strict traceability of the food so that when it reaches the retailers it is off right quality. According to ISO Quality standards ,Traceability is defined as the ability to trace the history ,application or location of the entity by means of recorded information( ( Ioannis Manikas and Basil Manos , 2006 ) .Traceability is used a means to have a efficient and transparent flow of information within the supply chain.
The efficiency in the system depends mainly on the ability to collect safety and quality related information. IT enabled system have over the years have changed the course of food sector over the years. This below diagram shows how the information is flown through the supply chain to trace the origin of the product
In the Food industry this provided a great advantage to the retailers so that it helps to identify what happens in each stage of the supply chain process that is from the production stage to till it reaches the final consumer. Traceability is done in many ways and it differs from supply chain to supply chain. On the aspect of traceability they make use of Bar codes, RFID Tags, computer labeled products etc as means to trace the product origin. In terms of customer they are being more aware and knowledgeable about the product and the quality that they need to expect from them the retailers.
These retailers are liable to trace the product at each stages so that any issues doesn't occur which could in turn lead untimely distribution of the product. Traceability is done according to the information that is put into the system which can range from Lot number ,Buyer id , Product ID or some firms also provide all the information that is available to them from production to distribution in order to have full traceability of the product.
Full traceability provides information on total product life cycle. For example in the dairy industry where milking and pasteurization take place full traceability requires information about animal breeding procedures, Batch dispersion, BOM, and distribution information. In the fresh produce industry full traceability only requires farming and Distribution system (Ioannis Manikas and Basil Manos, 2006).The concept traceability relates to all products and all types of supply chain
The use of technology in the FMCG has allowed ensuring rapid and effective communication of data across suppliers, the manufacturing plant, warehouses, distributors, wholesalers, and retail stores .and getting the supply chain to work at a faster rate with changing environment and customer needs. Grocery industry has benefited in so many ways with the emergence of new technologies available and this helped them to respond to and forth between the supply chains, these information that are passed through the supply chain plays a critical role.
For example the data received from the bar scanners are not just used internally by the retailers but the information transferred throughout the entire supply chain. The relationship between a retailer and supplier in differ in the way they apply the information. The development of efficient consumer response has brought in many technology based system to respond to customer demands at a faster rate. These systems have allowed the retailers as well as manufacturers to be more proactive rather reactive.
With the help of this technology it allowed for rapid feedback which in turn helps in making proactive decisions within the supply chain. ECR measures are being proposed in three areas product group management , product replenishment and enabling technologies( (Coopers and Lybrand, 1997).Point of sale and electronic date interchange which are enabling technologies as used to exchange information between links in the supply chain so that the other two become possible and easy to make use of.
The early use of paper based system in the grocery system was replaced by Electronic order and communication system such as an Electronic date interchange for the transfer of data and order details between the manufacturers and the retailers. This type of transfer of information allowed the data to travel at a much faster rate. Electronic data interchange is a technique based on agreed standards, which facilitates business transaction in standardised electronic form in a automated manner directly from a computer application in one organisation to an application in a another(Kenneth Lyson and Brian Farrington 2006 ) , One of the example is the Electronic point of sale in supermarkets.
When a product is purchased from a supermarket there is a barcode on the product that is scanned by the operator at the check out counter which automatically registers the price of the product on to the system. When this signal gets registered in the system it also triggers a computer process that reorders the items from the manufacturer and set off the production cycle, arranges invoicing, payment and transportation of the new order. EDI effectively help in the continuous replenishment of the product with no paper work and little of human effort. One of the major evolutions in the field of grocery industry was the introduction of RFID which is known as Radio frequency Identification which was also used for traceability of the product with much had more technological advantage added to it s side.
RFID tag makes use of electromagnetic waves to gather information from a small device called RFID tag (Martin Hingsley, Susan Taylor, and Charlotte Ellis, 2006). The tag need to be near antenna of an RFID reader. These tags differ according to its usage and the amount of information that can be stored about the product according to its criticality. Compared to the bar codes the RFID tags are capable of huge storage of information and it also has the ability to identify multiple items at once.
RFID provides detailed descriptive information of the product and allows for real time tracking system and it allows the supplier and retailer interaction to solve issues and problems that occur due to shortage or over shipment of the items. RFID has also bought significant financial benefits to retailers. One example for this was Sainsbury carried our a RFID trial and found that while the initial investment was estimated to be between $ 18 million and $ 24 million ,total benefits achieved were an estimated $ 8.5 million a year ,mainly through efficient stock control and rotation (Martin Hingsley , Susan Taylor , and Charlotte Ellis , 2006 ).
RFID implementation in the supply chain has allowed to reduce the human intervention and the reader has prevented the person whose using the reader to individually scan the pallet or case by reading multiple objects at once. According to Gilbert RFID should allow retailers and suppliers to have real time responsiveness (Martin Hingsley, Susan Taylor, and Charlotte Ellis, 2006).
With the help of technology the fresh produce growers and suppliers will be able to access the information relating to processing and distribution of their product and it also allows for tracking of the product which is of great advantage in the fresh produce as it allows for visibility and dramatically increasing the potential stock management. Distributors will be able to increase order fulfilment while reducing the paperwork involved in managing the distribution process. Retailers will be able to reduce stock-outs and shrinkage while gaining greater control of product expiry dates.
Joseph (2005) suggests that E-commerce is slowly affecting the distribution channels through which consumers and businesses have traditionally bought and sold goods and services. The online channel provides sellers with the ability to reach a global audience and operate with minimal infrastructure. reduced overheads, and greater economies of scale, while providing consumers with a broad selection and unparalleled convenience. As a result (<;"> Sliwa, 2004) , a growing number of consumers do business transactions on the Web, such as buying products, trading securities, paying bills and purchasing airline tickets.
Essentially, e-commerce is all about the transactional business process of selling and buying via the Internet. E-Supply Chain refers in particular to the management of supply chain, using the Internet technologies (Agrawal, 2000) . E-Iogistics enables organizations to see the big picture by capturing and sifting through data for procurement and fulfilment. Ultimately, management of the entire supply chain is e-enabled, and logistics-generated data can feedback into strategic and tactical decisions made by other parts of the organization.
The Internet ultimately provides access to true rather than forecasted supply and demand information. The e-Supply Chain will have customers and suppliers seamlessly linked together, throughout the world, exchanging information almost instantly. The velocity of relevant information flow will be so fast that, as a result, responding to the inevitable changes in expected vs. actual customer demand will mandate demand-driven manufacturing and supporting processes that provide for faster changes in the actual material flow to match demand. (Arthman, 1995).
E-Logistics also permits a closer integration of a company's internal business systems with collaborative information from partners and Web-based functions and information. In essence, e-Iogistics represents the foundation for improved business processes, allowing for real-time visibility, seamless channel linkage and collaborative solutions in the supply chain (Ricker, Fred and Kalakota, 2005).
The Role of Information technology has been helpful in reducing the cost of collecting, organizing and communicating data in supply chain. Both the supplier side and retailer side technology has been useful in get the information back and forth across the supply chain. In the terms of point of sale with the manufacturer/supplier is able to receive the information directly according to that they could estimate there production. In such a competitive trading environment, the role that can be played by information technology can mean the difference between success and failure. Technology is still changing at a faster rate and more new innovation is bought into the filed to make both side of supply chain function.
5.1 Vehicle Utilization in FMCG
In today's competitive market consumers have no idea about the multifaceted global food system and most of the food production and processing takes place millions of miles from the place they live. Distribution/Transportation is an important aspect of supply chain. In the case of perishable product the importance rises to another level because of the criticality of the product. The way the company manages its fleets of vehicle could immensely reduce the costs in the supply chain.
Transport is a huge part of the overall running cost of the business. According to MacKinnon (1999) there are indicators for the performance of the transportation in the food supply chain they are vehicle fill, Empty Running, Vehicle Utilization, Deviation from schedule, Fuel consumption.(Guido van Hofwegen, Gertjan Becx and Joep van den Broek, 2005).Transportation with inefficient delivery system can cause many root causes. For example during transportation there are different delivery time slots for the transportation of the products.
If any one of this time slots are missed this could lead to an after affect in other end of the supply chain causing disruption. Proper Transportation and distribution of the product can reduce the lead time in the supply chain enhancing customer satisfaction. The Transportation and distribution of a product is a big step till it reaches the hands of the customer .For example if you take the Dairy industry there is transportation and delivery at each stage of the supply chain from the time the farmer delivers the raw milk to the Milk processing unit which is then transported or delivered to the packaging unit and then to the suppliers from there to the retailer and finally the customer.
In all these steps utilisation of the vehicle would take place and all these parties also have to choose the right vehicle for the job. A study by the retail consortium in 1990 revealed that 12% of road freight movement in UK was estimated to be carried out by retailers. In 1994 lorry fleets of the largest supermarket chains travelled a total of 350 million kms, representing 3.6% of all articulated vehicle traffic on Britain's road (Alan McKinnon, 1996).
In UK compared to any other forms of transport road transport which dominates the freight distribution in UK provides greater flexibility to timings and destinations. Time is an important factor which is related to the delivering of the product from the point of origin to the point of consumption. As for any FMCG products there are fixed schedules for the product mainly for Dairy to be delivered on a daily, weekly or monthly basis.
In order to estimate the efficiency of milk buyers transport system different operational indicators are commonly used such as per trip, trips per vehicle day, litres per vehicle per day, and litres collected per kilometre travelled by the vehicle (Edward H D'A Oliver and George Rapsomanikis).In each of these cases the cost borne for the transportation would be in the hands of the company/firm that make use of its vehicle for the purchase of the product. It is to be noted that transportation is small part of the whole distribution system. Distribution as a function involves both warehousing and delivering.
It is in the delivery function that transportation is bought into effect. In the case of the perishable products such Dairy products and Fresh produce where continuous replenishment of the product is needed and the shelf life is short, the number of warehouses will be many and has to be close to the retailer's outlet so that the transportation of the product can take place at a faster rate. The vehicles used for the transportation depends upon the type of product that need to be filled and these differ from light van to Articulated Tractor and trailer.
Fleet configuration is an important think that needs to be considered by the firms because some require extra handling equipment, refrigeration facilities and other requirements. In case of Fresh produce and Dairy the vehicle used for transportation would be quite heavy because these product require lot of space and a bulk amount of product is being transferred to the warehouses and then to retailers outlet.
These trucks would also contain built in refrigeration facility because of its perishable nature and they need to be carried at a required temperature so that it doesn't get rotted which would involve paying higher costs which in turn leads to wastage of fuel. Fleet configuration is an important think that needs to be considered by the firms
In the uk most of the top supermarkets such as Tesco, Asda etc have set up retail distribution centres to make these products flow to the retail outlets with ease. This retail distribution would give an easy access to for the transportation of items which are of perishable nature. As the grocery sector involves purchasing /ordering of products frequently and in case of FMCG where replenishment of the product have to be done continuously the utilisation of the vehicle is done each and every time when the signal is received from the retail outlet regarding the shelf getting empty.
So for this purposes groceries have made use of retail distribution as mentioned to reduce the lead time and to cope up with increase demand of the product. From the point view retailers they are trying to cut down there transportation cost by making the distribution centres close to outlets which would help them to have minimum utilisation of the vehicle. During the distribution of the product the vehicle gets utilized and product is passed through different storage facilities or point of delivery.
This may involve anything from the manufactures warehouse to retail distribution centre. In the case of the distribution it can be divided into two types Primary and secondary where the vehicle is utilised for both of these distribution. Primary distribution would involve delivery of the product from the factory to the warehouse and secondary would involve form the warehouse to retail outlet. In the fist case the primary distribution would be done either by the manufacturer or both the distribution would be done by the retailer.
Over the years the retailers have taken control over the primary distribution so as to reduce the lead time in the supply chain and integrating the transportation both upstream and downstream to the distribution centre (Alan McKinnon, 1996).In FMCG supply chain JIT concept is frequently used for the transportation by most retailers/manufacturers to make the product reach the retail outlet at the minimum lead time.
The implementation of JIT approach emphasis on fast transportation and easy coordination. Using the just in time based approach the whole production batch is stored on site at the factory of the retailers /manufacturer. When an order arrives it is always fulfilled by making us of road transport from the onsite inventory (Geerten Ochtman, Rommert Dekker, and Eelco van Asperen).
In accordance with the utilising the vehicle for transportation there are probable situation that needs to be taken into account which increase the cost in the supply chain. Even though road transport dominates the freight distribution system it's filled with lot of implication. Traffic congestion caused due to unpredictable traffic accidents, such as accidents, road works, is the biggest problem faced by any company transporting the product and if the goods are of perishable nature like dairy products and fresh produce this would lead to more problems as in more circumstances there is limited choice for the hauliers other than to ride out congestion due to the route of the delivery given.
Nevertheless it should be noted that traffic growth is forecast to increase in the uk by 22% between 2000 to 2010 and congestion by 15% across whole uk road network (Department of transport, 2004a).Taken this into consideration in the coming years firms would have to make decision to optimize there transport so as over come the traffic congestion which is a big obstacle. Firms would have to manage there fleets of vehicles accordingly and schedule routes during less traffic hours. For example in terms of dairy industry most of the milk products are transported at early hours of the morning due to less traffic congestion.
Traffic is not the only cause where more vehicle get utilised there at times where the vehicle is running empty on the road without any product to be transported which in turn leading to unnecessary cost and fuel consumption.. Transport managers have to make decision regarding the loading of the product and in most cases only one directional collection or unloading of the product is done and the opposite direction the vehicle is travelling unutilised without any product on the back of the vehicle which is a wastage and which in turn leads to environmental concerns owing to the extra pollution that it can cause.
For instance the table below shows the empty running of vehicles in 2005 which was 27.4 % and these vehicles where driven unladen and was contributing to noise and air pollution, health and safety issues etc (Department of transport, 2006a).
Percentage of vehicle running by empty vehicle in 2005
Vehicle Type & Size (gvw tonnes)
% Running empty
Over 3.5 to 7.5
Over 7.5 to 17
Over 17 to 25
Over 3.5 to 33
Source: Department for Transport, 2006 a
Most of the causes of empty running was due to lack of coordination between the manufacturer and the retailer and the routes planned where without any coordination and planning which caused much of commotion to the environment and to the firms overall cost structure. The challenge in the freight industry is to find backloads for returning vehicles, by making use of spare capacity on the return leg of a delivery journey (McKinnon & Ge, 2006).
It was during this time these FMCG supply chain started making use of reverse logistics to tackle this situation. Rogers and Tibben-Lemke (1998) defined reverse logistics as the process of planning, implementing and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and related information from the point of
Consumption to the point of origin for the purpose of recapturing value or proper disposal (Sven Verstrepen, Frans Cruijssen, Marisa P. de Brito and Wout Dullaert, 2007). Reverse logistics was used as means by retailers, manufacturers ,distributors to make use of transportation in an innovate way to save the high cost that occur due to underutilised vehicles on road which lead to saving precious time and cost.
Grocery industry make use of reverse logistics as a mean to cut down costs during the procurement of the product in the sense when the product is procured from each distribution centre and transported from each distribution some other item is also procured at the same time and placed in the truck i.e. the truck gets refilled again wit items at each distribution point so that cost is reduced on the transportation and there no empty running of the vehicle which makes the purchasing of the items at one shoot which helps to make the product reach the retail outlet at the right time.
A recent study has suggested that savings of 20% to 40% could be made from reverse logistics for returned retail product many of them in the transport function ( Cranfield University et al ., 2004). For example some retailers such as Safeway and Tesco have already made use of reverse logistics to cut down there cost ( Alan McKinnon, 1996).
In the case of FMCG distribution system delays in the transportation of the product can cause product loss. As mentioned before because of the limited short life the item has to be replenished with proper utilisation of vehicle. With the emergence of Reverse logistics in the FMCG supply chain it has helped retailers or manufacturers to reduce the cost of there transportation.
The retailers and manufacturer are also trying to configure the fleet in different ways by trying to accommodate different product in one trip itself instead of taking round trips. They have tried to design the vehicle such a manner that it contains different section inside the trucks to fit more than one type of product which in turn leads reduce increase the efficiency and effectiveness of the transportation.
4. Analysis and Discussion
This part of the study describes the Indian FMCG sector and tries to find out if there is any difference in the supply chain between the countries United Kingdom and India the later part of the discussion. This study would begin by providing a detail outline of the Indian FMCG and its working.
The supply chain practices carried by each firm in there country or in any other country differs. Infrastructure of the country also plays an important role in seeing how the firms supply chain activities should carried out right from the point of origin to point of consumption. In the case of UK and India there is lot difference in the infrastructure of the country and different ways and measures are used by firms working within these countries to reach the product reach the customer.
By taking into account firms in India they are still trying bring in the latest technology and practices in supply chain to improve there standard of operation. But in the case of FMCG sector companies in both these countries have to very much responsive as the product is of that much critically and a detail explanation of the UK FMCG sector have already been mentioned in the literature review.
This part of the study try to establish different supply chain practices in FMCG sector in India and how different it is from united kingdom and it would also focus on the FMCG sector mainly the Dairy and fresh produce and also taking into account other major things that happens in the FMCG supply chain in India.
The FMCG sector has been the cornerstone of the Indian economy. Within the FMCG Category India is the second largest producer of fruit and vegetable and milk production with a cold storage facility of 70,000 tonnes( N. Viswanadham,2006) .Though, the sector has been in existence for quite a long time, it began to take shape only during the last fifty-odd years.
To date, the Indian FMCG industry continues to suffer from a definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and market size, among others.The sector touches every aspect of human life, from looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not easy.
After witnessing booming sales and flooding markets with innumerable products, FMCG companies have had to abruptly apply the brakes and look for various ways to save costs. In 2005, the Rs. 48,000-crore FMCG segment was one of the fast growing industries in India, which has been on a roll for many years, faces tough times ahead, although many segments still shows good growth.
FMCG sector has been estimated that the FMCG market will reach to US$ 33.4 billion in 2015 . (Online article ). Some of the top FMCG companies in India are the following Hindustan Unilever Ltd., ITC (Indian Tobacco Company), GCMMF (AMUL) etc. In comparison with Uk FMCG markets the India market have the longest supply chain due to its nature of operation.
As compared to uk the infrastructure and the geographical location of the places in India makes the firms to be highly alterative with there supply chain strategies in case of supplying the product at the right time to customers. Environmental changes have made Indian firms to realize the importance of the supply chain in the organisation the term which was quite new to them and where firms in uk have already started implementing these strategies at an early stage. Today Indian industry are spending 12 to 15 % of its revenue on logistics and trying to improve there supply chain quite exceptionally( B.S. Sahay, Jatinder N.D. Gupta, Ramneesh Mohan,2006).
These supply chain improvements taken by the firms would be quite different or some way similar according the firms in uk and these strategies are made in accordance with the infrastructure of the country as mentioned above. It also a point to note that in most of the developed countries there would be some degree of uncertainties regarding the basic requirement for any business such as road, water, electricity etc compared to developing country like the India chances are more for uncertainties and the infrastructure would pose many new challenges.
The main analysis that would be focussed would on the FMCG sector mainly the Dairy and fresh produce and also taking into account other major things that happens in the FMCG supply chain in India that is same or different from uk.
Diary industry in India is one of biggest revenue generating industries with millions of small producers and varies from region to region and state to state. India has emerged as the largest milk producers compared to uk crossing 800 million tonnes. There has been tremendous increase in the output of milk and milk products since 1970 faster than crop (Vijay Paul Sharma and Ashok Gulati, 2003 ).
The production of milk takes place in the rural household through out different parts of the country and these produced milk are delivered to different cooperatives across the country which are then delivered out. But over the years the milk production has increased largely due to the efficient supply chain activities. In India the milk supply chain takes place some what in a different way from that happens in the united kingdom.
The milk production of each firm in India is coordinated by the cooperative milk marketing federation of each state. The cooperatives in turn would set up numbers of unions within the state for the processing of the milk and other subsidiary products.
Each state would have more than 8-9 unions that collects milk that is produced by the farmers which is then collected from the cooperative village society. The main reason why these unions was implemented was to reduce the other intermediaries in the supply chain and reduce the cost within the supply chain. The structure for the above is given below
Indian Diary Supply chain
Cooperative Village Society
The unions collect more than 6.3 million litres of milk from millions of farmers around the state through the societies in the village. These products are distributed to consumers through a channel of 4000 distributors and 500,000 retailers( Pankaj Chandra Nimit Jain,2007).It is also important to note that supply chains in the Dairy industry can be characterised into organised and unorganised dairy supply chains.
The Figure shown above is an organised diary supply chain with other the major intermediaries acting within the supply chain leaving out others. In the unorganised dairy system there is no government body or other institutions like the national federation .and it is the middleman and contractors that plays a major role compared to the co-operative in the unorganised dairy sector which also quite different from the working in the uk.
Fresh produce Industry
The other industry that is also important to the Indian sector is the fresh produce sector and country is the second largest producer in fruits and vegetables in comparison with uk with a total global production of 9.2 %(Rabo India Finance Ltd ,2007).The volume of fresh produce that is produced is consumed in the domestic market.
The supply chain of fruit and vegetable differ according to the seasonality of the product, nature of the market etc. There is always a difference in number of players in supply chain depending on the market condition.
The Indian FMCG sectors operation takes place at both end mainly in the rural areas and the urban where the final product is transferred. Most of Dairy manufacturing unit or the fresh produce is located in the rural areas. The most important activities of the Indian FMCG and fresh produce takes place in the rural supply chain and this area cannot be ignored as these markets are growing at a fast rate compared to the urban areas.
The main activities that take place in the rural production organisation are the following Procurement , Production of basic agricultural products , Processing and Retailing(Rural and Urban).In most case both these supply chains has to work together to provide the customer at an efficiently. In most cases there are less coordination and transfer of information between these supply chain causing lot of disruption due to continuous use of the same technology and other uncertainties to make the product reach the customer.
There is also a lot negligence from state and central and other corporate on trying improving the main criteria's that is needed in the FMCG supply chains. The milk chain in India is a complex and fragmented supply chain with about 85% of the milk flowing into the unorganised sector and in turn results in the in efficiencies in the distribution channel compared to the uk dairy sector. It is also to be noted even though India is the biggest milk producer in the world since 1995, not a single Indian dairy company featured in the list of global top 20 companies
The most important threat in the Indian FMCG sector is lack of cold chain stores and inadequate storage facilities and the involvement of so many intermediaries makes a large amount of perishable food in India get rotted before reaching the end consumer. As mentioned above the infrastructure of the country in the beginning of the analysis the partners in the supply chain are also weak because of the infrastructure connecting them. The firms doesn't make use of what the demand signal in the market and try to push the items that have been produced by the farmers into the market. Compared to uk there is no big stores in India and as mentioned above with the interference of so many intermediaries it makes it difficult ,that is there no one powerful as such in supply chain to manage and coordinate the activities.
Indian's firms where much slow behind the usage of technology in the supply chain. In supply chain the most important aspect is the planning which was quite a challenging task for most firms in India due to lack of visibility as it was not sure what was happening at the customer level. The use of the EDI technology such as point of sale system have been made to use in the last few decades and before the introduction of this has resulted in the transmission of information in the supply chain at a slow rate which made it difficult for the manufacturers on the other end of the supply chain.
The rural market is in worse shape in terms of sales information since these shops do not have any point of sales systems (Jayashankar M. Swaminathan, 2006).In India still firms have inefficiencies in there operation as there are not still having the capability to make use of the technology available and still rely on pen and pencil which is not suitable for an fast growing and responsive environment. In the rural markets because of the technological disadvantages orders where only taken on the basis of the products that are available in the warehouse which in turn lead to products that are out of stock and in greater demand never being replenished.
The lack of technology being used has made it difficult of the firms to integrate the information available in the supply chain as the firms where not responding to what was needed in the market .Compared to the uk's consumers good sector firms in India doesn't make any use of the bar coding technology to keep track of there product and they are still using push based strategy rather than shifting pull based. Coordination of information between the supply chain members is a major problem in India. India has 98% unorganized retail markets which have lead to uncertainties in demand causing disruption in supply chain.
Due to unorganised supply chain 50% of fresh produce produced are lost due to lack of information being transferred across members of the supply chain. In tonnage terms this is almost the amount the consumed in Great Britain (McKinsey report, 2003) .The main problem in the supply chain of Indian firms is that IT is not taken seriously and there is poor coordination among the members of the supply chain.
The supply chain in India is badly adopted to provide service to even key segments of product range and other problem is that in the fast consumer goods sometimes supply is not constant which is mainly due to inaccuracy of customer needs and delay in information being transferred. Because of the lack of technology not being implemented there is lot wastage that is happening in the Indian supply chain in sectors of FMCG.
In India the post harvest technologies at a nascent stage compared to uk. If you into account the Dairy industry in India the technology that is used is quite different from uk as the raw milk is coming form the rural areas which 200 miles away from the retail outlet.
Dairy industry make use of other kind of technology so as to make the milk the final customer and it is quite or some what that different from uk. In India as mentioned before there is both organised and unorganised dairy system. The organised dairy system make use of the village co-operatives to collect the raw milk that is coming from the village farmers and all the details regarding how much litre the milk, its quantity are tested and the payments are made manually to them which was a traditional approach in India.
But over the years each state in India have made changes to this system by making use of Automatic collection system which can avoid delays in the supply chain. By making use of Automatic collection system which allowed the farmers to insert these identification card, pour the milk into the bucket on the automatic collection system and the system showed all information from weight , fat content to the money that needs to be paid to the farmers so that they get a fair rate.
The introduction of this technology in the rural areas improved and speeded up the entire milk collection process and also the system was more transparent. For example a time that a farmer would take in the traditional approach would be 45 minutes which was reduced to 10 minutes (Ajay Sharma , Akhileshydav,2003).
As mentioned before the infrastructure of the country also plays an important role in the making the products reach the customer. India being a large country firms would have to look into the distance that need to covered and the routes and schedules that they have to take into account so that the product can reach the end user .In the case of country like uk the infrastructure is quite good in case of making the product reach the customers. In the case of India most of manufacturing units are located miles away from the retail outlets so by time the product reaches the retail outlet there may so many uncertainties that a firm has to taken into account especially products that are of perishable nature.
In India like uk the most convient mode of transportation that is made use of is the road even though most firms also relay in the rail or at times multi-model transportation facility also used by others firms also to avoid the uncertainties in the delivery process. The transportation cost India accounts for nearly 40% of the cost of production with most of the goods being transferred by means of road. The transportation by means of rail has been losing due to myopic government strategies and inherent inefficiencies (Samir K. Srivastava ,2006).
In India compared to uk most of road layouts are in bad and poor conditions which makes the distribution and delivery among the supply chain a bit difficult especially in case of non perishable items making the lead time higher by the time the product reaches the final customer. In uk most of the roads are built with high standard making the transportation of the product at ease. In uk the issue that is related to when transporting of products is mainly traffic congestion but in India this is not only the issue the roads are constructed in a such a manner that it leads not only to traffic congestion but also causes problem to the truck or van that is carrying the products such as breakdowns, repairs etc.
During monsoon season in India the transportation of products can come to stand still because the road gets totally wrecked which can affect the supply chain at both the ends increasing the lead time too much higher days. In India compared to uk the farms are located in the in rural areas which are far away from the retail outlets and also due to the unpredictable traffic and road conditions making it sometimes difficult to make the product reach at each stage of the supply chain. It is estimated that only 4% of suppliers are within in the distance of the production facility while the other 50% are located 300 miles (Chandra and Sastry ,2002).
The Road conditions of India makes it impossible for the firms to come out with a strategy to make the reach the product reach the retail outlet. But in case of Diary industry both in uk and India have fixed schedules to deliver the milk to the production unit before it reaches the final point. As the case of both of fresh produce and Diary industry for the transportations purpose they firms have made use of cold chains across the country because of the distance that need to be covered. It has also been seen over the years Indian firms especially FMCG have made use of third party logistics to respond to the market and try to cut down there cost. Most of the business related transportation activities done by make use of trucks which are highly fragmented 2.7 million commercial fleet operated by over half a million fleet operators (ET 2005).
In the FMCG sector the most important part to ensure the product reach the customer is by making use of the cold chain logistics which are a big part of the uk FMCG sector. Most of the firm make use of this so that the product reaches the end customer without any quality issues. Cold chain logistics is very much important to the FMCG sector in India as most of the products that reach the retailers are of low quality. Cold chain logistics can be described as a facility that provides ideal storage for perishable items from the point of origin i.e. from the farm level to the point of consumption(N. viswanadham).
Even though this system has been implemented for more than so many years they still lag behind in the technological improvement in this system. One of the main issues in the chain is that if one of the chains is weak the whole system fails. For example the cold chain management involves the fresh produce such as Fruits and vegetable to be maintained at the right temperature when it travels from one part of the state to another or a region. As India is a big state it better off having a so many number of cold storage industry because of the distance that need to covered so that the products are fresh quality by time it reaches the customers.
But compared to India uk have started making use of cold chains so that there no interruption in between the supply chain even when transferring the product so that they are able to maintain the temperature. As such there are no cold chains that is in existence in India compared to uk but only small scope for it has started rising in the state of Maharashtra. Cold chains are important for both the sector for fresh produce and Dairy when the product has to travel a lot of distance from the place of origin to the point of sale. Compared to uk there is not that much distance that need to covered because of the geographical location.